Its not just Bharti though, the stock market is littered with examples of darlings turning into disillusionments. Infosys, which listed in 1993, is probably the best example of a spectacular company not able to live up to expectations. It could be the change of guard at the IT major or it could be the challenging global environment but the software giant, reputed for its under-promising and over-delivering, has missed guidance way too many times in the last couple of years. That has cost it its premium valuations and the stock now trades at multiples below that of peer TCS; from a lifetime high of R3,479 in January 2011, the Infosys counter now quotes at levels of R2,500.
Once a must in every portfolio, and a stock that has made so many people wealthy, Reliance Industries Limited (RIL) has probably been the disappointment of the decade; to the dismay of fund managers, many of whom are compelled to hold the stock given its weight in the indices, RIL has underperformed the Sensex for more than three years now. The stock hit a lifetime high in mid-January 2008 of R1,626 but has lost almost half its value since then and even a buyback of nearly four crore shares has not helped it regain its sheen. Much like Infosys, RIL is sitting on piles of cash, but the core business isnt delivering enough and the new businesses could take a while to create value.
Indeed, hundreds of stocks have been feted for years only to be shunned once it was clear that the business wasnt shaping up the way it was expected to. Hero Honda was a hot favourite for years until the split with Honda changed it all. Smart investors are also aware that the good companies can bounce back and watch for the turning points. Take Bajaj Auto, which, at one time, just didnt seem to be able to get its act together; a few winning models in the right segments and the two-wheeler maker was back on track and, in February this year, the stock hit a lifetime high of R1,839, making it a twelve bagger in just over three years. Every now and then there are companies that have been all but written off only to be wooed all over again. With Tata Motors, this has happened twice over: throughout 2011 the stock languished after the company reported a R500 crore loss for the year to March 2001, but it bounced back smartly thereafter, with a killer of a product in the LCV Ace, only to crash again in 2008, when it hit a six-year low. This was after the $2.3 billion acquisition of Jaguar Land Rover (JLR) in March 2008, which saw the company weighed down by debt. But a tremendous turnaround at JLR saw the stock roaring back to hit a lifetime high in April this year. The most remarkable comeback of all times is perhaps that of Apple, which fell off to less than $90 in late 2008 and now commands a price of $670.
While business cycles have understandably much to do with stock prices, there are companiesvery few reallythat manage to sustain growth at a steady pace. In India, one can think of only a single blue chip that has managed to do this over the years and that is HDFC Bank, which hit a lifetime high last month and even overtook the State Bank of India in terms of market capitalisation. The stock has always commanded a premium for its remarkable ability to sustain earnings and the fact that it has the cleanest book in the business. Indeed, its possible investors may have made far more money punting on penny stocks but they would also have lost a lot of sleep. Unfortunately, there isnt a second HDFC Bank. In fact, its becoming harder these days to pick stocks; the increasing correlation with global markets and the much more dynamic, difficult and often volatile regulatory and political environments have brought with them uncertainty of a kind never seen before.
There will always be the few secular growth storiesan ITC or a Hindustan Unileverbut its hard to bet on any one company being able to deliver performance forever or even for any meaningful length of time. Even HUL and ITC have had their bad days but they have done exceptionally well; ITC has used its cash from the cigarettes business to build an FMCG portfolio and that has been appreciated by the market which drove up the stock to a lifetime high of R271.50 in late August. HUL, in contrast, saw some rough patches in 2009, but its comeback has been remarkable with the stock hitting a lifetime high of R546.30 on September 13. It would seem then that the key to stockpicking remains what it has been all along: the quality of management, its ability to navigate rough waters and turn the ship quickly when needed. As Sam Walton famously said: Capital isnt scarce, vision is. Above all, shareholders want to see commitment: in a heartening move, Tata Sons recently converted warrants in Indian Hotels at a 75% premium to the market price where numerous companies, in the past, like Aditya Birla Nuvo have let warrants lapse. Thats commitment.